UCITS IV and Self Managed Investment Companies

As you may have been aware, the Central Bank recently proposed to apply the “full UCITS IV regime” to UCITS organised as self-managed investment companies (“SMICs”) by 1 July 2013.

It was envisaged by the Central Bank that this would involve each SMIC filing a draft revised business plan with the Central Bank (updated for compliance with the newly applicable rules) for review and adoption prior to the 1 July 2013 deadline.

The net effect of this “UCITS IV SMIC enhancement process” was that the Central Bank would be applying all the organisational requirements applicable to UCITS management companies (as contained in the UCITS IV Management Company Directive, to SMICs.

Over the last few months, Maples and Calder have led a project from within the Legal & Regulatory Committee of the Irish Funds Industry Association (“IFIA”) to seek clarification from the Central Bank on some fundamental questions regarding this UCITS IV SMIC enhancement process.

This project resulted in a detailed memorandum being submitted to the Central Bank from the IFIA on 21 March 2012. The memorandum raised quite significant issues on the proposed UCITS IV SMIC enhancement process and requested that the Central Bank engage in substantive industry consultation before affected UCITS were required to file updated business plans with the Central Bank reflecting the proposed changes.

We are pleased to advise that this submission has been received favourably by the Central Bank. In a letter to IFIA on 27 April 2012, the Central Bank accepts that it should revisit its position and it now considers that it has more flexibility in prescribing the organisational rules that should apply to SMICs post UCITS IV. It is accepted that it is not appropriate or necessary for the full requirements of the UCITS IV Management Company Directive apply to SMICs. Instead, the Central Bank indicates that each organisational rule should be considered individually as to its applicability to a SMIC. This is viewed as consistent with the provision in Recital (5) to the UCITS IV Management Company Directive which provides that the Directive’s rules on administrative procedures and internal control mechanisms should apply to both UCITS management companies and SMICs, taking into account the principle of proportionality.

It is now the task of the IFIA Legal & Regulatory Committee to consider the organisational rules in the UCITS IV Management Directive (and the general provisions regarding SMIC organisation requirements in the Level 1 UCITS IV Directive) and present proposals to the Central Bank on what it considers to be an appropriate framework for SMICs.

The Central Bank has indicated it will consider these proposals and engage further with the Committee with a view to finalising a more considered and proportionate set of enhanced UCITS IV organisation rules for SMICs. Of most significance in this development is the opportunity to make the case that the permanent compliance function and internal audit function, as contained in the UCITS IV Management Company Directive, are not appropriate for a SMIC operating a delegation only business model and that specific and proportionate rules in relation to compliance and internal audit should apply to SMICs.

We would welcome the thoughts of any interested client that wishes to provide any input in the IFIA Legal & Regulatory Committee’s response to the Central Bank’s request for proposals. The Central Bank has requested a response by 21 May 2012.

The deadlines for the receipt of revised business plans have been postponed pending the outcome of this consultation process. The Central Bank has indicated that revised deadlines will be agreed once the final position on the scope of the rules for SMICs is determined.

We will keep you updated on our progress in this regard.

For further information please speak to your usual contact or the individuals listed above.